By improving their own finances, parents give gift to children

Eileen Ambrose, The Baltimore Sun

Many parents braved the malls to find their children this year's must-have toy or the hottest gadget.

But gifts come in many forms.

My suggestion to parents isthat they take steps in the months ahead to improve their finances in a way that will indirectly be a gift to their children. These steps won't elicit the oohs and aahs that an iPad does, but your children will be grateful someday that you took them.

Here are a few:

Make a will This is essential for parents of young children. A will is the only document that allows you to designate the person you want to be your kids' guardian if you die.

If you don't name a guardian, the court will decide without your input. And it might not choose the person you would have selected. Or a family feud could break out over the guardianship.

"With some families it's easy, and some families it's not so easy, particularly in the blended families we have today," says Michael W. Davis, an estate planning lawyer in Columbia.

Davis says many parents say they delayed drawing up a will because they couldn't decide on a guardian. But do your kids a favor and get the job done. "That's a huge gift," Davis says.

Buy life insurance How will your family pay daily living expenses, the mortgage or college tuition if you die and your paycheck disappears? If you don't have the money to cover those needs, you'll need life insurance.

Buy term insurance that will protect your family for a specific period, such as until the kids get through college or the mortgage is paid off.

Term insurance premiums have been dropping for years because of competition and longer life expectancies. It's the "best time to buy in decades," says Amy Danise, editor of Insure.com, an insurance information website.

Insure.com and insurers offer online calculators to determine the amount of coverage needed. You won't have to buy as much insurance if you have savings and investments that the family can tap, Danise says.

If you can't afford to buy a policy to cover your needs, "buy what you can afford," Danise says. You'll be locking in some coverage at your current age and health and can purchase another policy later when you have more money, she says.

Get an advance directive Don't put children in the tough position of guessing what medical care or end-of-life measures you want taken in the event you're incapacitated and can't speak for yourself.

Prevent this emotionally wrenching situation by getting the right documents.

Marylanders need what's called an advance directive. It has two parts. The first allows you to name a person to make medical decisions on your behalf. The other, frequently called a living will, lets you declare what life-sustaining treatment you want — or don't want.

The Maryland attorney general provides the forms and more information online at http://www.oag.state.md.us.

Additionally, draw up a general power of attorney in which you select a person to make financial decisions on your behalf when you can't, Davis says. That way, your family's financial life won't be interrupted.

Once children are old enough to handle end-of-life discussions, talk to them about your wishes. This will give you a chance to explain your choices, and it will make it easier for them to carry out those wishes.

Update beneficiary designations No matter what your will says, the person listed as the beneficiary on life insurance, annuities, individual retirement accounts and other accounts will inherit that money at your death.

So, if you haven't updated your beneficiaries in a while, an ex-spouse might get the proceeds from your life insurance. Or your mom could inherit your IRA. And neither has to turn the money over to your current mate or kids.

Chuck Bender, chief financial officer of Financial Consulate in Hunt Valley, says clients often name a spouse as a primary beneficiary and list a first child as the next in line. But then, he says, they have more children and forget to add them as contingent beneficiaries.

If both parents die, he says, all the money goes to the first child. And even if the firstborn agrees to share, Bender says, this situationcan lead to tax consequences.

Organize records If you die, would your spouse or children know where to find a copy of your advance directive, power of attorney, will and other important documents? Could they quickly find the names and phone numbers of your lawyer, accountant and investment adviser?

Getting documents in order and letting key family members know where papers can be found will prevent a lot of headaches.

Make sure you provide survivors with a list of all the passwords for your computer and online accounts.

Don't forget passwords to social media sites, something attorney Davis makes sure to point out to clients. He says he still gets automated invitations from a friend who died two years ago because the Facebook account hasn't been closed.

Save for your future Parents often say they don't want to be dependent in old age on their children. Avoid that scenario by saving for retirement.

"We all have to be financially responsible for ourselves," says Clarissa Hobson, a financial planner in Colorado Springs, Colo. "A big part of that is taking retirement savings seriously."

Hobson says clients often want to focus first on saving for a child's college education.

"We encourage them to step back," she says. "You can borrow for your child's college [education], but you can't borrow for your retirement."

Besides, you will waste valuable time if you don't start salting away money for retirement until the college bills are paid. In fact, you might not be able to catch up on saving and end up relying on the kids.

Long-term care insurance Hobson says some clients help pay for the care of their aging parents. "They look at it and say, 'It would be nice if my kids didn't have to do this for me.'"

One solution is long-term care insurance that can pay for home care, assisted living and nursing homes.

Not everyone needs long-term care insurance. Medicaid will provide for the poor, and the rich can pay for their care themselves. Insurance is an option for those in between.

Premiums go up with age, but people age 50 to 60 can find coverage at affordable prices, Hobson says.

Also, you can save money by buying a smaller policy if you have other assets that can supplement the cost of care, Bender says.

Be a good example Personal finance isn't widely taught in schools. But even before kids enter the classroom, they have been learning money management by watching you. If you're a coupon cutter or pay living expenses by juggling credit cards, children will pick up on that.

"They see those behaviors and that's what they take to heart," Hobson says.

So be a role model. Let children see you setting goals and saving to achieve them. And during a season when we're all encouraged to spend, this could be the best time to pass on this gift.